Buying US Treasury bonds is one of the most important ways for China to use its huge foreign exchange reserves. Due to the large purchase amount, this issue has increasingly become the focus of attention in China and the United States. Song, a scholar at Fudan University, recently wrote that:
First, the yield of China's purchase of US Treasury bonds needs to be improved. Whether it is measured by actual purchase income or relative purchase income, it is purchased with foreign exchange reserves.
The yield of US Treasury bonds is not high. If we take into account the accelerated appreciation of the renminbi and the global depreciation of the dollar, the income from buying US Treasury bonds will actually be further reduced. In this case, China should consider not only safety and liquidity, but also profitability when purchasing US Treasury bonds. In fact, the establishment of China Investment Company in China shows that China is rethinking how to use its huge foreign exchange reserves according to the rate of return. It can be predicted that if the yield of US Treasury bonds cannot be maintained at an appropriate level, the total amount of US Treasury bonds purchased by China will not increase as rapidly as in the past few years, but may decline.
Second, there is no "financial terror balance" between China and the United States. Lawrence summers, the former US Treasury Secretary, once described the financial relationship between China and the United States as a "financial terror balance". However, the analysis shows that the financial relationship between China and the United States is more like an asymmetric dependence: on the one hand, the trade surplus with the United States is the most important source of China's foreign exchange reserves, and the huge foreign exchange reserves are the premise to ensure that China can buy a large number of US Treasury bonds; On the other hand, China's huge foreign exchange reserves, even if used to buy US Treasury bonds, cannot have a significant impact on the asset prices and interest rates in the United States. If we only look at this kind of capital transfer and influence between China and the United States, from the financial field as a whole, China needs the United States far more than the United States needs China.
Thirdly, as a natural extension of the second conclusion, we can know that China's purchase of US Treasury bonds does not threaten the US financial market and the US economy. Although China's purchases of U.S. Treasury bonds have increased significantly in recent years, objectively speaking, the U.S. Treasury bonds currently held by China are not enough to have a significant impact on the U.S. Treasury bond market, let alone pose a serious threat to the U.S. financial market. This conclusion will be more obvious if we consider the special relationship between Britain, Japan and the United States and the amount of US Treasury bonds held by these two countries.
After 30 years of reform and opening up, China has accumulated nearly 2 trillion foreign exchange reserves. What are we going to do when we have money? You can't watch it in your own house every day. This will depreciate. The best solution is that money can make money, and the more you earn, the more money you earn. Is to engage in financial investment, let the money snowball bigger and bigger, and ensure that we will get richer and richer. Buying U.S. Treasury bonds is a relatively safe way to invest, and it can certainly guarantee no loss. This is also the reason why our government is keen to buy US Treasury bonds. That is, in 2008, during the financial crisis, the China administration launched a series of financial combination boxing, purchased US Treasury bonds and engaged in financial investment, making China the largest creditor country in the United States. Expand domestic demand, make a 4 trillion investment plan, and build infrastructure and high-tech industries. This also shows from another side that the motherland is strong and can make so many investment plans in one basket at home and abroad, and it also proves that China is indeed rich and can develop at home and abroad. So we spend so much money on US Treasury bonds, can we say that there are no disadvantages and disadvantages? Not exactly. If we buy too much US Treasury bonds, it will affect our investment in other fields. For example, we can use part of the money from buying US Treasury bonds to buy oil and mineral resources for strategic reserves, and the string of being ready for war is always tense. Also, wouldn't it be better to use this money to invest in third world countries and establish China industrial park and free trade zone? Wait, there are many ways to spend money to make China bigger and stronger. Why should it be a great good thing to be the first creditor in the United States to buy US Treasury bonds? I'm not an economist, and I don't know much about China's economic model. I asked this question only after reading several books on the principles of economics. I hope our investment in US Treasury bonds is the best investment after repeated weighing.